Relendex Limited is authorised and regulated by the Financial Conduct Authority (FRN: 723117). Relendex Limited is registered in England, Company Number 07486328. Registered Office: 99-100 Turnmill Street, London, EC1M 5QP.
Introduction
The following Outcomes Statement is intended to explain in clear terms Relendex’s procedures for handling loans that have defaulted in some way and provides information beyond the regulatory requirement imposed by the Financial Conduct Authority (FCA).
The Outcomes Statement is provided to enable Lenders to understand and monitor the performance of the Relendex loan portfolio and to do this by providing the following:
- Data on actual and expected rates of default on all P2P loans Relendex has originated, split by different categories of risk.
- An explanation of the assumptions used in assessing expected future default rates.
- Data for the actual returns received by Lenders, with comparison against any Target Rates offered on the Relendex platform.
- A detailed explanation of the limitations of the data provided.
Note: Data relating to past performance, including the rates of default of loans made to borrowers arranged by Relendex and the rates of returns paid to Lenders, should not be viewed as a guarantee of future performance.
Loans made on the Relendex platform are not protected by the Financial Services Compensation Scheme, and capital is at risk.
Definition of Defaults
Lenders should be aware that there is no single definition of a default, nor an agreement as to the time in which a loan should be declared to be in default. Lenders should be further aware that to the extent that there are industry norms, these relate to the consumer credit and SME lending industries, which by their nature are very different from the making of commercial property loans. The FCA recognises the limitations of the approach and consequently allows each platform to provide their own definitions.
Relendex recognises the following categories of default:
- Technical Default
- Formal Default
- In Recovery
- Loss
Technical Default
The making of loans secured on commercial property is an extremely complex procedure. To protect Lenders, numerous covenants and obligations may be placed on Borrowers. Some of these, like the payment of interest on due dates, are apparent to Lenders, but many are not.
Relendex defines a Technical Default as any default that is capable of being remedied, and the Borrower is actively taking steps to remedy the default. Examples include:
- A borrower has failed to make an interest payment by its due date.
- A Loan-to-Value (LTV) covenant has been breached.
- Any other material covenant in the facility agreement has been breached.
- The term of the loan has expired, but the borrower is in the process of negotiating an extension with Relendex.
Formal Default
Relendex does not place a minimum time upon the declaration of a Formal Default. It actively monitors all Borrowers and usually forms an accurate opinion upon the progress of any loan and the potential for a default long before the end of the loan term.
- Borrowers who keep Relendex well-informed rarely suffer Actual Defaults.
- Borrowers who do not keep Relendex informed, mislead the company, or renege on commitments are placed into default at the earliest possible opportunity.
- Historically, a Formal Default has been called even when a loan is not even one day overdue.
- Relendex has adopted a 90-day post-contractual payment long-stop date for declaring a Formal Default.
Implications of a Formal Default
- Default Interest Rates apply. Typically, this is 150% of the original coupon offered to Lenders in the Listing Documents.
- The risk of loss of capital or non-payment of interest increases, but all loans are secured on property, reducing the risk.
- The loss of liquidity. A loan in default cannot be traded on the Resale Marketplace.
In Recovery
When Relendex is confident that a Borrower will be able to remedy an Actual Default and is actively taking steps to do so, it may allow the Borrower, with detailed oversight, to manage the repayment process.
- Appointing a receiver incurs additional costs and may destroy the Borrower’s capital in the property.
- Relendex avoids these costs as long as the Borrower is acting in good faith.
- If the Borrower does not cooperate, Relendex will use all legal remedies, including the appointment of receivers.
Loss
There is no industry-standard definition of a Loss.
Relendex operates a policy of prudence:
- Losses are declared once assets are realised and the loss has been crystallised.
- If additional remedies (e.g., personal guarantees, negligence claims) recover funds, the declared loss is reduced accordingly.
Actual and Projected Capital Losses and Defaults
The table below displays the Expected Default Rate for all P2P agreements against the Actual Default Rate by reference to their risk category.
Loan Risk Categories
| Risk Category | Description | LTV % | % of Loans Originated | Weighted Average Coupon Rate % | Actual Default/In Recovery Rate % | Anticipated Loan Loss after Recovery % | Expected Long Term Loss Rate % | Anticipated Loss Adjusted Yield % (2021) | Anticipated Loss Adjusted Yield % (2020) |
|---|---|---|---|---|---|---|---|---|---|
| A+ Senior/RSP | Senior loans to RSP members | <50% | 46.7% | 6.5% | 0% | 0% | 0% | 6.66% | 6.58% |
| A Senior | Senior loans | <50% | 32.4% | 6.54% | 8.1% | 0.63% | 0.5% | 6.27% | 6.98% |
| B Junior | Junior portion of A-grade loans | 50-75% | 18.7% | 8.75% | 3.3% | 0.74% | 2.0% | 6.75% | 7.02% |
| B Mezzanine | 2nd charge loans | 50-80% | 2.2% | 11% | 0% | 0% | 3.0% | 8.00% | 6.92% |
Note: The total expected loss rate is calculated over the entire life of a loan.
Limitations of the Data
- Past performance cannot be taken as an accurate indicator of future outcomes.
- Assumes no systemic collapse in the UK commercial property market.
- Assumes a normalised property cycle.
- Does not consider time taken to recover loans, which represents an opportunity cost.
- The introduction of RSP and enhanced borrower vetting should see a reduction in anticipated losses, but this has not been reflected in the outcomes statement.
Anticipated Returns
Lenders' returns are impacted by two key factors:
1. Cash Drag
- The allocation of cash to loans is the single most significant factor determining a lender’s overall return.
- In 2021, analysis showed that an average of 10% of lender funds was held as cash balances (2020: 16%).
- This “cash drag” reduced actual returns by approx. 0.65% per annum.
2. Diversification
- The greater a lender’s diversification, the more likely their performance will match the expected returns.
- A non-diversified investor could outperform target rates, but a lender in a single Junior or Mezzanine loan could experience a total loss of capital.